Two brothers run a coal-processing business as a partnership. On 30 March 2020, they carried out a major restructuring. Each set up a personal holding company and transferred their partnership share into it. The holding companies then set up a joint private limited company in which they each hold 50% of the shares. The holding companies then contribute their partnership shares to that joint private limited company. That private limited company, in turn, establishes an operating company and transfers the business into it. The business premises, together with hidden reserves, remain within the joint private limited company. All of this takes place on the same day.
Set of legal acts
The inspector rejects the request for a silent conversion. The contribution forms part of a series of legal acts aimed at the transfer of the business. A silent conversion requires that the business be continued by the entity into which it is contributed. In this case, that is the personal holding company, but it does not continue the business. The business ultimately ends up in the operating private limited company.
No fiscal unity, no business merger
The Decree on Silent Conversion offers a way out: the onward transfer does not preclude the facility in the case of a fiscal unity or a business merger. However, where the holding is 50%, a fiscal unity between the personal holding company and the joint private limited company is not possible. Nor does the business merger facility offer a solution. Due to the immediate contribution to the holding companies, there is no question of independent operation from an organisational point of view. The remaining business premises do not qualify as a branch of activity.
Error on the part of the adviser
The brothers invoke the principle of proportionality. In substance, no tax claim is lost. Moreover, their adviser failed to apply for tax unity in good time. Surely they cannot be held responsible for that? The court does not agree with this argument. The inspector has no discretionary power when applying the Silent Conversion Decree. The Decree does not allow for a balancing of interests. The inspector merely assesses whether the conditions have been met. That is not the case. The appeal to the principle of legitimate expectations also fails. The fact that the inspector imposed the assessment on the joint private limited company in accordance with the tax return cannot give rise to any legitimate expectations on the part of the brothers.